Chapter 12

Question 1

Which of the following statements about the businessowners policy (BOP) is NOT correct?

A) The BOP is a self-contained contract.
B) The BOP is an open-perils policy.
C) The BOP is designed for businesses that represent relatively low hazards.
D) An insured selects each coverage provided under the BOP.

Answer 1

Answer: D

The Businessowners policy prepackages a group of coverages desirable to small businesses.

Question 2

Which one of the following businesses would be eligible for a businessowners policy?

A) Manufacturing facility.
B) Motel with two floors.
C) Public parking garage.
D) Neighborhood bar.

Answer 2

Answer: B

The BOP does not cover parking garages, bars, or manufacturing operations. Motels that do not exceed three stories and meet other eligibility requirements may be covered under a BOP.

Question 3

Which of the following businesses would be covered by a businessowners (BOP) policy?

A) Johnny’s Tavern.
B) State Street Savings Bank.
C) Hank’s Hot Rods.
D) Balderston’s Rare Books.

Answer 3

Answer: D

The BOP does not cover businesses related to autos, bars, and banks.

Question 4

Which one of the following businesses may be covered under a businessowners policy (BOP)?

A) West Richfield Bank and Trust.
B) Circle C Convenience Store.
C) Ziegfeld and Son’s Foreign Auto Repair.
D) Larry’s Tavern.

Answer 4

Answer: B

The BOP is a package policy providing most of the property (both direct and indirect), crime, and liability coverages that small and medium-sized businesses require. The BOP does not cover businesses related to autos, bars, and banks.

Question 5

Which of the following types of business would be better covered by a CGL than a BOP?

A) A greeting card store.
B) An oil refinery.
C) An accountant’s office.
D) A 12-unit apartment building.

Answer 5

Answer: B

The businessowners policy is designed to meet the insurance requirements of small businesses, such as offices, stores, or apartment buildings.

Question 6

What is the standard deductible on a businessowners policy?

A) $500.00
B) $250.00
C) $1,000.00
D) $2,500.00

Answer 6

Answer: A

The standard deductible on the businessowners policy is $500. Other deductibles, up to $2,500, are available.

Question 7

Abby’s beauty parlor suffers a loss caused by lightning. Her parlor sustains $10,000 of building damage and $5,000 personal property loss. Her fire department also charged her $1,000. To meet current building codes, her cost to repair her building was an additional $2,000. What will her BOP pay, assuming that her limits are adequate?

A) $16,000.00
B) $17,000.00
C) $18,000.00
D) $15,000.00

Answer 7

Answer: C

Since this question states that the policy limits are adequate, the policy will pay for all of the damage to the building and contents. It also will pay for the fire department service charge, because the actual charge of $1,000 is within the policy’s standard limit of $2,500. The limit for increased cost of construction under the BOP is $10,000. Since the $2,000 loss actually incurred in this scenario that applies to this coverage falls within this $10,000 limit, that expense would also be covered in full, so all of the expenses listed in this scenario would be covered.

Question 8

The property coverage in the unendorsed Businessowners policy is written on a (an):

A) named peril basis.
B) limited liability basis.
C) valued basis.
D) open peril basis.

Answer 8

Answer: D

Property coverage in the unendorsed BOP is provided on an open peril (special form) basis. An endorsement can be added so coverage is provided on a named peril basis.

Question 9

Paul has personal property valued at $10,000 located at a nonowned premises. While at that location this personal property is destroyed by a tornado. What will Paul’s BOP policy pay in regards to this loss?

A) Nothing as this is a loss that occurred off-premises.
B) $10,000.00
C) $5,000.00
D) $7,500.00

Answer 9

Answer: B

The BOP provides “Personal Property Off Premises” coverage for covered property (other than money and securities, valuable papers and records or accounts receivable), while it is in the course of transit or at a premises you do not own, lease or operate. The most the BOP will pay for loss or damage under this Extension is $10,000.

Question 10

Ted’s TV shop sustains a fire loss and has the following losses: damage to the building $15,000, damage to contents $7,000, debris removal $5,000, and damage to valuable papers and records $15,000. What will his businessowners policy pay assuming his limits are adequate?

A) $27,000.00
B) $32,000.00
C) $42,000.00
D) $37,000.00

Answer 10

Answer: D

All losses are covered in full except valuable papers and records, which has a limitation of $10,000 in a single occurrence at each described premises - unless a higher limit is shown in the declarations. For valuable papers and records not at the prescribed premises, the limit is $5,000.

Question 11

The property coverage in the businessowners policy would cover losses due to all of the following perils EXCEPT:

A) off-site power failure.
B) fire.
C) vandalism.
D) riot.

Answer 11

Answer: A

Property coverage in the unendorsed BOP is provided on an open peril (special form) basis. Loss due to off-site power failure is specifically excluded under the policy.

Question 12

All of the following coverages can be found in the businessowners policy EXCEPT

A) workers compensation.
B) business income.
C) liability.
D) extra expense.

Answer 12

Answer: A

The businessowners policy contains coverages needed by all businesses. All businesses have exposures to loss of business income, liability, and extra expense, but not all businesses have an exposure to workers compensation. In fact, many small businesses that employ fewer than three workers may be exempt from state workers compensation laws.

Question 13

Ted’s TV shop has a fire loss and the following losses occur: damage to the building $150,000, business personal property $20,000, and debris removal $15,000. The limit of insurance applicable to the covered property that sustained damaged is $170,000. How much coverage, if any, is available for debris removal?

A) $15,000
B) $5,000
C) $0
D) $10,000

Answer 13

Answer: D

In the event that the limit of insurance is exhausted, or the maximum amount collectible for debris removal is not enough to cover the debris removal expense, an additional $10,000 of insurance for each location in any one occurrence is available for debris removal. If either or both of these conditions applies, the total payment for the direct physical loss and the debris removal expense may be up to, but cannot exceed, the limit of insurance on the covered property that sustained loss or damage, plus $10,000.

Question 14

The businessowners policy covers collapse of a building if the collapse is caused by any of the following EXCEPT:

A) flood.
B) hidden decay.
C) vermin damage.
D) weight of rain.

Answer 14

Answer: A

The businessowners policy covers collapse of a building if the collapse is caused by any of specified causes of loss stated in the policy, hidden decay, hidden insect or vermin damage, weight of people or property, weight of rain, or use of defective materials.

Question 15

All of the following are optional property coverages under the businessowners policy EXCEPT:

A) outdoor signs.
B) mechanical breakdown.
C) personal property off premises.
D) money and securities.

Answer 15

Answer: C

Personal property off premises is automatically provided as an extension of coverage under the businessowners policy.

Question 16

Which one of the following is an optional coverage under the businessowners policy?

A) Employee dishonesty.
B) Personal effects.
C) Valuable papers.
D) Business income.

Answer 16

Answer: A

Business income is automatically included in the businessowners policy. Personal effects and valuable papers are both automatically included in the extensions of coverage. Employee dishonesty is available only as an optional coverage.

Question 17

Answer: A

Business income is automatically included in the businessowners policy. Personal effects and valuable papers are both automatically included in the extensions of coverage. Employee dishonesty is available only as an optional coverage.

Answer 17

Answer: B

A $1,000 per occurrence limit applies to outdoor signs attached to buildings.

Question 18

The businessowners policy form provides protection to buildings, business personal property, or both on a replacement cost basis provided at least 80% insurance-to-value is maintained. If the limit of insurance is less than 80% of replacement, how will the loss be settled?

A) Losses will be paid on an ACV basis.
B) Losses will be paid on a proportionate share basis.
C) Losses will be paid on either an ACV or proportionate share basis, whichever is lessor.
D) Losses will still be paid on a replacement cost basis, because that is how a businessowners policy is written.

Answer 18

Answer: C

If the limit of insurance is less than 80% of replacement cost, losses will be paid on either an ACV or proportionate share basis, whichever is lessor. The coinsurance penalty would apply.

Question 19

Ted’s TV store goes out of business, and the building becomes vacant for 90 days. Lightning strikes the building and causes a fire, resulting in $60,000 of damage. How much will Ted’s policy pay, assuming he has enough insurance?

A) $54,000.00
B) Nothing because the building has been vacant for more than 60 days.
C) $51,000.00
D) $60,000.00

Answer 19

Answer: C

After a building has been vacant for more than 60 days, losses are reduced by 15%.

Question 20

Pete owns a building that is covered by a businessowners policy. The store has been vacant for 55 days and sustains vandalism damage in the amount of $5,000. The policy limit is $60,000. How much will the policy pay?

A) $0.00
B) $4,250.00
C) $6,000.00
D) $5,000.00

Answer 20

Answer: D

After a building has been vacant for more than 60 days, the insurer will not cover any loss caused by vandalism or sprinkler leakage. All other losses are reduced by 15%. The deductible also applies. Because the vacancy was less than 60 days, vandalism damage is covered.

Question 21

Ted’s shop has a replacement cost of $250,000, and his contents have a replacement cost of $90,000. Ted purchases $100,000 of insurance for building coverage and $75,000 of insurance contents coverage under an unendorsed BOP. Ted sustains a loss by fire that causes $20,000 damage to the building and $5,000 damage to the contents. How much will his policy pay?

A) $15,000.00
B) $5,000.00
C) $20,000.00
D) $25,000.00

Answer 21

Answer: A

Fire is a covered cause of loss. However, Ted’s policy will only pay for half of the building loss, as he did not purchase 80% of the replacement cost to obtain replacement coverage. The coinsurance clause required $200,000 ($250,000 x 80%) on the building. As Ted only had half that amount, his loss would be limited to 50%, or $10,000. Since the amount of coverage on Ted’s contents met his coinsurance requirement ($90,000 x 80% = $72,000, and Ted carried $75,000), the contents will be covered in full.

Question 22

Recently the local utility company’s main power supply depot was damaged by high winds. Ted, who owns a TV store, wants to make sure he has coverage for damage to all the TV components demonstrated in his store if the power goes out. What does Ted need to purchase?

A) Utility Services–Direct Damage Coverage.
B) Utility Service–Time Element Coverage.
C) Utility Services Coverage.
D) Nothing, as these utility services are covered in all businessowners policies.

Answer 22

Answer: A

Ted should purchase the coverage for property damage to cover loss of or damage to covered property described in the schedule caused by direct physical loss or damage to off-premises properties providing water, communications, and power supply services and overhead transmission and overhead communications lines.

Question 23

Paul purchased utility services–time element coverage for his bicycle shop. Of the following, which statement best describes the type of coverage Paul purchased with this endorsement?

A) Payment for damage to property due to utility interruption.
B) Payment for damage to property due to power outages that occur with utility services.
C) Payment for loss of business income due to a covered loss involving certain utility services.
D) Payment for loss of business income for any type of utility interruption.

Answer 23

Answer: C

The utility services–time element coverage endorsement pays for loss of business income or extra expense if damage to certain utility services property located outside the covered buiding by a covered cause of loss results in an interruption of service to the described premises. The utility services–direct damage coverage endorsement covers loss or damage to property caused by an interruption in water, communication, or power supply service.

Question 24

Bob, the owner of a hardware store covered by a businessowners policy with the protective safeguards endorsement, discovers that the sprinkler system at his store is not operational. Which of the following actions must Bob take?

A) Bob must notify the insurance company within 48 hours of any impairment.
B) Bob must notify his agent and insurance company within 48 hours of any impairment.
C) Bob must notify the insurance company within 72 hours of any impairment.
D) Bob is covered and is not required to take any action.

Answer 24

Answer: A

The insured must notify the company within 48 hours of any impairment to protective safeguards, such as a building sprinkler system. Failure to do so will result in a suspension of coverage.

Question 25

Under the protective safeguards endorsement, the insured must notify the insurer within how many hours of any impairment to protective safeguards to prevent suspension of coverage?

A) 60
B) 72
C) 48
D) 24

Answer 25

Answer: C

The insured must notify the company within 48 hours of any impairment to protective safeguards (such as a building sprinkler system); failure to notify will result in a suspension of coverage.